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Nigeria is set for elections next month. The presence of Boko Haram is growing. The dividedness of the Christian and Muslim communities and political parties is concerning. If the election isn’t certain, things could go from bad to worse for Nigeria and investors. Several weeks ago, I opined that Global X MSCI Nigeria Index ETF (NYSEARCA: NGE ) may very well be a great pick-up after oil, tax-loss selling and other market externalities play themselves out. Since then, the price has still been thrust down by oil and currency devaluation. This is a great concern over the nation’s GDP and government budget, the bulk of which are derived from oil. With elections due up next month, how in the world does anyone see opportunity now? First off, I would like to point out that non-oil sector growth has vastly outpaced estimates and has given some relief to many concerns of global entities. Agriculture has done surprisingly well and on a micro level, there are some companies in Nigeria that seem to beat estimates and perform very well, even while Nigeria is in the midst of a potential panic. A great example is Seven Up Bottling Company of Nigeria, PLC. The demographics of Nigeria are also important. The younger people make up the workforce and spending, leading most costs to not be on healthcare unlike MDCs. Spending on healthcare is actually one of the least economically fruitful ways of spending money. Think of it this way; you have an Oldsmobile that you drive to work every day. The car is reliable, until one day it just goes kaput. Instead of spending money on making yourself better off economically, be that a new suit or what-have-you, you have to put that money into getting that car back to where it was a few days ago. You have not gained anything from that spending and that spending is on a service that, spare parts, only makes money for the mechanic(s). The same can be said for health. You are not buying something, an asset, instead you are receiving a treatment. It is nontransferable and only valuable once it is given. For more long term reasons for NGE, please read my other article . Let’s look ahead to what’s important now. Nigeria has an election coming up. For those of you not quite familiar, I will give a brief summary of the situation and the possible conclusions and ramifications for investors. I shan’t go much past the now. I think this is more important currently, but you can read more about other long term aspects elsewhere in conjunction with this. I do this separation because I am long the entire Nigerian market, but currently, I am bearish for the short term. The President of Nigeria, Goodluck Jonathan, is up for reelection. His base of support is the oil-rich Niger delta and the southern portion of the country. His opponent, Muhammadu Buhari, is expected to be favored in the northern portion of the country, which is believed to be primarily Islamic, and has been the boiling pot of attacks from terrorist group, Boko Haram. Boko Haram has been attacking much more frequently and it is highly feared that it will jeopardize not only the ability of people to vote, but also the legitimacy of the vote itself. In Nigeria, a president has to win a majority and obtain 25% of the vote from 2/3 of all states. If not all are able to vote, Nigeria may not have a clear winner and with Boko Haram attacking and Christian-Muslim, South-North tensions escalating, it is quite possible, even probable, that the post-election climate will be that of violence. Let’s examine the possibilities. If Goodluck Jonathan wins with the majority and other stipulations needed, the Nigerian market will likely bounce from the loss of uncertainty. Investment in the country may slowly return, after an overwhelming capital flight last year. That would be a bullish sign and would resolve one of the few issues barring my full-on investment in Nigeria. If Buhari were to win with the necessary requirements, this may not seem so bullish. The oil giants have really taken a shine to Jonathan and may not think, and perhaps for reasons, that Buhari will be as amenable to them in passing legislation to reduce vandalism, tax burdens, etc. This would be bearish, but not completely devastating. If no one were to clearly win, then it is highly likely that a physical struggle will ensue. Those with investments still in the country may flee for fear of nationalization or damages. It is evident in Nigeria’s history that this is a real possibility. Guinea, Burkina Faso, Central African Republic, Chad, Mali, and Ivory Coast are just a few nearby countries that have experienced instability in the past few years. We have seen a recession in an already vacuum of wealth, the Central African Republic, due to insurgency which overtook that country and a complete market collapse, of 70 to 80% plus, in the Ivory Coast due to riots in Abidjan. Instability doesn’t bode well for investors, even in a stable nation like the US. Here, when an election is hotly contested and speculative, the market bounces and drops at the drop of a hat. That said, Nigeria is not a bad investment. It just isn’t a good one right now, but if Nigeria’s ducks are in a row, you better believe I will be the first to dump a pile of cash into it. Scalper1 News
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